Making an Even Larger Hole in State Finances

Well, the 2003 session of the state Legislature just completed its first quarter and already it is beginning to shape up as another disaster, a disaster for state finances.

In an attempt to “stimulate” the economy, lawmakers have decided to serve up a bountiful helping of tax measures which literally give away the state treasury. And this year the magic pill comes in the form of more tax credits. Just to give you an idea of the magnitude, here are some of the tax credit measures still under consideration. First of all the construction industry and developers are busy pushing their agenda to extend, if not expand, tax credits for their industry. SB 868 would extend the 4 percent tax credit for residential construction for another two years out to 2005. This tax credit was supposed to have sunset last June 30th but was extended to June 30th of this year. SB 1174 and HB 1400 would also extend the hotel renovation tax credit with the Senate bill pushing the sunset date out two more years and the House bill giving the credit another five years of life. The House bill would also change the credit from a nonrefundable credit to a refundable credit.

Then there is the super duper construction stimulus bill, HB 1394, that would grant a credit equal to 4 percent of the costs of qualified commercial construction for projects costing $10 million and under and a credit equal to 10 percent of the qualified construction costs if the project is over $10 million. Not only that, but all of the project’s costs would be exempt from the general excise tax, the use tax and public service company tax. And if the project has facilities providing accommodations, the rental of those accommodations would not have to pay the 7.25 percent TAT until Jan. 1, 2011. The credit would apply to almost any type of construction other than residential.

Thus, since there would be no 4 percent general excise tax on the project’s costs, the tax credit proposed in this bill would be pure gravy for the developer. It would amount to a subsidy paid for by all other taxpayers in Hawaii.

And if you think those proposals go overboard, just consider all the project specific bills that beg for tax credits. At the top of that list are SB 1291 and HB 1138 sponsored by the state administration and SB 377 and HB 1279 sponsored by lawmakers which resurrect the $75 million in tax credits for building a world class aquarium and mammal training center at the Ko Olina Resort and Marina. Touted on the basis that it will create 11,000 temporary jobs and 2,000 permanent jobs, the bill has become the political punch of the day. Politicians are afraid to oppose it because it supposedly will help train the people on the leeward side of Oahu who are “economically depressed.”

How can one oppose such assistance to the poor and downtrodden? But has anyone asked the people of the Waianae coast if this is the kind of job and job training they want? And where is there any commitment other than a smooth talking medicine man that promises those thousands of jobs? There is no qualification in the bill that requires that the beneficiary of the tax credit has to provide those jobs or that job training. The only thing the taxpayer has to do is to build this world class aquarium and mammal training facility and, oh yes, did someone notice that the credit is granted for qualified costs in the development of facilities for “attractions and educational purposes?” That latter qualification could slip DisneyWorld or SeaWorld under the tent of qualification.

When it is pointed out that this bill would help one specific landowner, the response is that this is not the first time the state has help large landowners and in fact the state helped the redevelopment of Kakaako where Kamehameha Schools and the Ward Estate owned nearly all of that land. What the defenders of that position fail to note is that the state didn’t give away tax credits. The state set up an authority and oversaw the orderly development of those areas, and, yes, provided public funding through an appropriation process that underwent close scrutiny. To compare Kakaako to Ko Olina is like comparing the proverbial apples and oranges.

And if Ko Olina isn’t enough, it has spawned a bunch of “ME TOO!” proposals. One would grant up to $25 million in tax credits for building a law enforcement, emergency medical, and public safety training facility at Kalaeloa (Barber’s Point). Still another proposes up to $50 million in tax credits for the building of a motor sports recreational, education, and public safety training facility also out at Kalaeloa.

So do you think this a good use of your tax dollar? Ka-ching, there it goes in another tax credit!

”’Lowell L. Kalapa is the president of the Tax Foundation of Hawaii, a private, non-profit educational organization. For more information, please call 536-4587 or log on to”’ http://www.tfhawaii.org

Hawaii Reporter is an award-winning, independent Hawaii-based news and opinion journal founded in 2001 and launched in February 2002. The journal's staff have won a number of top awards from the Society of Professional Journalists, including the top investigative news reporting awards, business reporting awards, government reporting awards, and online news reporting awards.